A company's dividend decision may signal what management believes is the future prospects of the firm and its stock price.
A model developed by Merton Miller and Kevin Rock in 1985 suggests that dividend announcements convey information to investors regarding the firm's future prospects. Many earlier studies had shown that stock prices tend to increase when an increase in dividends is announced and tend to decrease when a decrease or omission is announced. Miller and Rock pointed out that this is likely due to the information content of dividends.
Source
Boundless vets and curates high-quality, openly licensed content from around the Internet. This particular resource used the following sources: